Weighing your micropayment platform options: is it smarter to buy or build?

Written by: Currencycloud

Published on: July 01, 2016

The internet has greatly simplified the process of entering new markets around the world, allowing companies to build an international customer base, minimize operational costs and go to market faster an ever before.

Technology has also radically changed how companies process international payments for goods and services sold. Ten years ago, cross-border payments were mainly made by big corporations for large dollar amounts.

However, today’s on-demand economy has caused a shift in business models with companies making higher volumes of smaller payments. Uber, for example, may make $10M in payments to drivers a day, but that $10M is split into thousands of smaller payments which can amount to hundreds of dollars each.

When a major corporation pays a single manufacturer millions of dollars for raw materials, a $50 wire fee can easily be absorbed by the corporation. However, for businesses that sell smaller items or services built around thousands of $1 to $10 payments, that fee could consume a large proportion of the total transaction value. Although international businesses all face the same challenges, those with business models built around micropayments are far less able to absorb the additional overheads.

This presents a major problem as the success of on-demand marketplaces like Etsy, Airbnb and Ebay proves that customers value the user experience and convenience of micropayment-based services. And if success is defined by meeting the preferences of buyers, the ability to accept and process low-value payments becomes essential for businesses. But in order to deliver this solution, providers need to overcome a number of hurdles:

Negotiating banking partnerships and transaction fees

Every international money transfer will incur some type of fee, usually in the form of a flat charge, or as a percentage of the total value of the payment.

If you are thinking about building a micropayments platform from scratch, careful consideration should be given to choosing the most cost-effective payment providers. There will likely be a series of negotiations with providers in every market to establish agreeable transaction fees, which will then need to be factored into your pricing strategy. You may also find that some banks are not interested in micropayments because their own returns will be extremely small.

As an alternative, choosing a platform provider that aggregates small transactions and provides an inexpensive, flat rate for all transactions being processed would allow you to make payments in local currencies around the world and avoid time-consuming negotiations with multiple banks.

Navigating money licenses & regulatory compliance

Building your own global payments system is a monumental task which would require you to comply with various consumer protection regulations and obtain money licenses in every market of operation. The pursuit of money licenses can quickly become expensive and time consuming in countries like the U.S., where federal regulations require money service businesses to have a license in each state.

Further, every micropayment taken by your business must conform to the regulatory guidelines of your and the customer’s home country, adding an additional layer of bureaucracy. While negotiating fees with banks, your compliance team will also need to ensure that every provider adheres to regulations.

If compliance needs to be established on a country-by-country basis, roll-out of your service will be slow, allowing competitors to establish rival solutions before you can launch. It could be that the process is so complicated, your business scales back its expansion plans, limiting the growth and profitability of your service.

Partnering with a B2B cross-border payment provider would allow you to bypass this stage since the provider would have already obtained licenses and completed the necessary compliance audits in advance. All you need to do is to hook into the provider’s web services to begin accepting micropayments. All the heavy lifting is performed on the hosted platform where the compliance issues are eliminated.

The same is true of the actual purchasing process which should be as smooth and seamless as possible to prevent customers from backing out before the transaction is complete. A small fee is further incentive to see the order to completion.
When dealing with multiple payment processing platforms however, it becomes far more difficult to maintain consistency, which in turns creates a less than optimal user experience. The more disjointed the checkout process, the more likely the buyer is to drop out, no matter how small the charge.

Opting for a single platform that can accommodate your customers’ payment preferences, or handle multiple input and output options for timely money transfers to suppliers and business partners, allows you to focus on integrating just one payment gateway into your service. By reducing the number of variables, your team can focus on delivering that all-important exceptional customer experience.

These challenges are not unique to micropayments users

While the challenges outlined here affect all businesses trading online, the effect is much more pronounced with businesses reliant on micropayments. It is possible to build a micropayment processing platform to handle all of these challenges, but it will be complex and expensive. And these expenses will continue to mount as the platform needs to be expanded, updated or reworked to accommodate changing compliance needs.

A logical and cost-effective solution is a cloud-based payments platform that can accept and process micropayments on your behalf. This approach avoids all of the problems outlined above, and allows you to focus all of your efforts on delivering the highest quality products, services and experiences for your clients. The ability to control costs and strengthen profit margins will also ensure the financial security of your business moving forward.

To learn more about overcoming the challenges of accepting micropayments and how Currencycloud can help manage many of these hurdles for you, please get in touch.